Alibaba IPO Price Revealed - What Will Drive BABA Stock Higher

The Alibaba IPO price could reach as high as $24.3 billion, after Alibaba Group Holding Ltd. (NYSE: BABA) announced Friday that it will be pricing its shares between $60 and $66 per share.

At the midpoint of that range, the company will have a valuation of approximately $155 billion.

Alibaba plans to sell a total of 320.1 million American Depositary Shares, which would be worth roughly $21 billion if they are sold at the high end of the range. The company also noted that the deal's underwriters may end up buying more shares following the IPO, bringing the total to $24.3 billion.
alibaba ipo price
A price that high would make the Alibaba IPO the largest public offering in history. The Agricultural Bank of China Ltd. currently holds the world record for largest IPO, having raised $22 billion in 2010. Visa Inc. (NYSE: V) raised $19.65 billion in 2008, making it the largest U.S. IPO ever.

The company is beginning the "roadshow" portion of its IPO process today (Monday), and will hold more than 100 meetings in cities including Hong Kong, Singapore, London, New York, Boston, Los Angeles, and San Francisco.

Following the roadshow, Alibaba stock is expected to begin trading on the New York Stock Exchange on Friday, Sept. 19.

Through the offering, Alibaba will be selling roughly 123 million of the total 320 million shares. Founder Jack Ma, Vice Chairman Joe Tsai, and Yahoo! Inc. (Nasdaq: YHOO) will be selling the remaining shares.

According to The Wall Street Journal, Alibaba chose a lower price range for its shares to encourage long-term investors to buy into the stock. The company also wants to avoid a similar IPO flop like Facebook Inc.'s (Nasdaq: FB) in 2012.

"The company has taken a conservative stance with its pricing, just to prevent a repeat of the Facebook IPO," Morningstar's equity strategist R. J. Hottovy told The Journal.

At the time, many thought FB's $38 per share was high, and the stock dipped more than 50% in its first three months. Alibaba wants to avoid a similar situation.

"The pricing is intriguing, based on the growth profile and the profitability profile, and frankly, the dominance of the franchise in the Chinese market," Cupps Capital Management's Chief Investment Officer, Andrew Cupps, told The Journal.

For investors, an Alibaba IPO price range of $60 to $66 may not seem "conservative" at first glance (Visa priced its shares at $44 in 2008). However, numerous bullish figures, including the growing Chinese market, suggest that Alibaba stock could climb much higher than $66...

Explosive Chinese Growth Will Drive Alibaba Stock

Last year, online shopping in China was a $298 billion business. That easily surpassed the United States' $263 billion, making China the largest e-commerce market in the world.

And the most encouraging part of that growth is Alibaba's market share. Nearly 80% of all online transactions in the country take place over Alibaba's network of sites.
alibaba ipo price chart"Alibaba is the dominant e-commerce player in a marketplace - China - that's seeing incredible growth in online commerce," Money Morning's Executive Editor Bill Patalon said. "According to the research I've seen, e-commerce in China is projected to hit $540 billion by 2015, and that's just for starters. By 2020, China's e-commerce market will be worth more than the United States, the United Kingdom, Japan, Germany, and France combined. So we know that growth is coming... and we know that Alibaba is the No. 1 gun."

By 2015, the number of Chinese e-commerce users is expected to hit 520 million - that's more than double the number expected in the United States.

Those growth figures were evident in Alibaba's last financial update, when the company reported second-quarter revenue of $2.54 billion. That was an increase of 46% from the previous year, and was up from revenue growth of 39% in the previous quarter.

Moreover, the company is highly profitable. In the second quarter, operating profit margins were reported as 43%. Amazon.com Inc. (Nasdaq: AMZN), one of Alibaba's biggest global competitors, had an operating margin of 0% in the same time.

As the Chinese market continues to grow, Alibaba and BABA stock are positioned perfectly to profit.

Join the conversation on Twitter @moneymorning and @KyleAndersonMM using #Alibaba.

Editor's Note: Did You Know You Can Make 149% on the Alibaba Shockwave Effect Now? Many investors are hoping to cash in on the Alibaba IPO by making the "obvious" move. But there's another way. I'm talking about a unique "backdoor" company that most people have never heard of before. Our research shows you can reap huge profits on this right now. Go here.

Related Articles:

[epom]